Ukraine seals gas discount deal with Russia

Ukraine's Energy Minister Volodymyr Demchyshyn said the new deal is a 'victory' for his governmentReuters

Ukraine has agreed a deal to buy Russian gas for the next three months at a significantly lower price, the Ukrainian energy ministry said on Thursday.

Kiev will pay $248 per 1,000 cubic metres of gas for the second quarter, after paying $329 per thousand cubic metres in the first quarter.

The deal was agreed despite the two governments clashing over a rebellion in eastern Ukraine, where pro-Russian separatists have become entrenched in the cities of Donetsk and Luhansk and more than 6,000 people have been killed in the past year.

Ukraine's economy has been decimated by the conflict, as the value of its hryvnia collapsed and its government agreed to multi-billion dollar bailouts to stave off bankruptcy.

The agreement extended all the terms agreed for the previous package apart from the price, Ukraine's energy ministry said.

The agreement was a "victory" for an economic approach to relations between the countries' energy bodies over a political one, Ukraine's Energy Minister Volodymyr said on the ministry website.

Kiev wants to sign a memorandum with Moscow this month to secure supplies until March 2016, the minister said on Thursday.

Russia completely cut off gas supplies to Ukraine last June in a pricing dispute that threatened to disrupt supplies to Europe. Previous gas disputes between the neighbours have affected gas supplies to Europe, which relies on Russia for around a third of its gas needs. And 40% of that gas travels to Europe via Ukrainian pipelines.

Russia and Ukraine remain locked in to a 10-year gas agreement made in 2009 when Viktor Yanukovych was in power in Kiev.

While the pro-Russian Yanukovych was granted a steep discount under that deal, the pro-European government in Kiev has been treated less favourably by Russia;s state energy giant Gazprom.

Ukraine's government has said the terms of the deal charge too high a price and has managed to negotiate short-term relief on the price with help from the European Commission.